Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Global Market Report - 07 July

Lewis Jackson  |  07 Jul 2022Text size  Decrease  Increase  |  
Email to Friend

Australia

Australian shares are set to rise in line with Wall Street as investors digested the latest minutes from the US Federal Reserve.

ASX futures were up 35 points or 0.5% at 6528 as of 8.00am on Thursday, pointing to rise at the open.

The S&P 500 gained 0.4% on Wednesday. The Dow Jones Industrial Average picked up 0.2%. The Nasdaq Composite Index also added 0.3%.

Fed officials concluded at their meeting last month that they needed to pick up the pace of interest-rate increases because of an increasingly worrying inflation outlook. Some investors believe that signals the Fed will stick with previously telegraphed plans to keep raising rates -- and they fear that will tip the economy into a recession.

"When the Fed last met, the market's primary worry was inflation; the minutes reflect that. But in the weeks since, the odds of a recession have picked up substantially," said Michael Rosen, chief investment officer of Angeles Investments. "The challenge for monetary policy will become much more acute as the Fed is forced to balance elevated inflation with a contracting economy."

Locally, the S&P/ASX 200 closed 0.5% lower at 6594.5 as weakness in mining and energy stocks dragged on the market.

Materials and energy sectors dropped 5.0% and 5.8%, respectively, on falling commodity and iron-ore prices.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

BHP lost 5.6%, while Rio Tinto was 7.3% weaker. Oil producer Woodside declined 6.9% and Beach Energy fell 8.0%. Gold miners St. Barbara shed 9.5% and Regis Resources fell 6.9%.

The major banks closed between 0.9% and 1.8% higher after some lenders raised rates in line with the RBA, which yesterday delivered its second consecutive 50-basis-point interest-rate rise.

Technology and property trusts were the best-performing sectors adding 3.1% and 3.2%, respectively.

In commodity markets, Iron ore rose 1.8% to US$112.35, Brent crude oil fell 2.8% to US$99.90, while gold lost 1.6% to US$1736.50.

In local bond markets, the yield on Australian 2 Year government bonds edged down to 2.40% while the 10 Year declined to 3.40%. Overseas, the yield on 2 Year US Treasury notes rallied to 3.00% and the yield on the 10 Year US Treasury notes rose to 3.12%.

The Australian dollar slipped to 67.77 US cents, down from 68.00 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies jumped again to 99.03.

Asia

Chinese shares ended lower, as a rise in Covid-19 cases in parts of the country sparked renewed lockdown fears. "While investors have been trying to price that the worst is over, any uptick on cases will resurface the risks of economic restrictions, which will lead to some unwinding of bullish bets," says IG's market strategist Yeap Jun Rong. The Shanghai Composite Index fell 1.4% to 3355.35, the Shenzhen Composite Index dropped 1.2% to 2207.20 and the ChiNext Price Index slipped 0.8% to 2802.72. Energy stocks were lower after oil prices slumped overnight on fears of a recession. China Oilfield Services fell 4.5%, PetroChina lost 3.3% and Cnooc Energy Technology & Services slipped 1.5%.

Hong Kong stocks closed lower, with the benchmark Hang Seng Index down 1.2% at 21586.66, amid broad-based losses led by oil companies. Recession fears, as well as worries that China could instigate fresh lockdowns amid rising Covid-19 cases, are weighing on equities, Oanda senior market analyst Jeffrey Halley said in a note. Oil companies are down, tracking lower benchmark crude prices, with Cnooc the worst performer among HSI constituents, shedding 4.8%. Industry peer PetroChina slid 4.3%. Other decliners included Haidilao and WH Group, each retreating 4.0%.

Japanese stocks ended lower, dragged by sharp falls in energy and financial stocks, as concerns persisted about the global economic outlook and the impact of fast policy tightening in many parts of the world. Oil explorer Inpex lost 10% and Dai-ichi Life Holdings dropped 5.6%. The Nikkei Stock Average fell 1.2% to 26107.65. Investors will focus on any policy-related developments ahead of Japan's upper-house election on Sunday.

Europe

European markets rose amid political chaos in the United Kingdom. The pan-European Stoxx Europe 600 ended 1.7% higher, the French CAC 40 rose 2% and the German DAX ends 1.6%.

London’s FTSE 100 rose Wednesday, mirroring its peers in mainland Europe. London's blue-chip index closed 1.2% higher, offsetting some of Tuesday's 2.9% drop as pressure grows on Prime Minister Boris Johnson to resign amid a series of high profile cabinet resignations.

"As the UK watches its government collapse from inside, stocks have been given a lift by a better US ISM services figure," Chris Beauchamp from IG said.

It was a positive day for companies across most industries, including pharmaceutical group AstraZeneca, alcohol producer Diageo, consumer products specialist Unilever and tobacco giant BAT. The best performers were investment companies Abrdn and Scottish Mortgage.

Oil majors, however, were in the red with Shell dropping 2.1% and BP down 1.3%. The FTSE 100's worst performer was silver miner Fresnillo, as its shares plunged 5.7%.

North America

US stocks rose after minutes from the Federal Reserve indicated how the central bank's efforts to tame inflation through interest-rate increases may progress.

The S&P 500 gained 0.4% on Wednesday. The Dow Jones Industrial Average picked up 0.2%. The Nasdaq Composite Index also added 0.3%.

Fed officials concluded at their meeting last month that they needed to pick up the pace of interest-rate increases because of an increasingly worrying inflation outlook. Some investors believe that signals the Fed will stick with previously telegraphed plans to keep raising rates -- and they fear that will tip the economy into a recession.

"When the Fed last met, the market's primary worry was inflation; the minutes reflect that. But in the weeks since, the odds of a recession have picked up substantially," said Michael Rosen, chief investment officer of Angeles Investments. "The challenge for monetary policy will become much more acute as the Fed is forced to balance elevated inflation with a contracting economy."

Federal-funds futures recently priced in a roughly 50% chance of the benchmark interest rate rising to 3.5% by December before falling in mid-2023, as markets moderate their long-term expectations for interest rates, according to CME Group's tracker.

"The market is pricing in a very benign scenario where the Fed can contain inflation with fairly modest tightening," Mr. Rosen said. "That seems optimistic to me."

Stocks had edged up in recent days, as some investors shifted their views about the aggressiveness of central bank tightening as economic growth and consumer sentiment weakened. Markets had begun to price in a pivot on policy from the Fed, despite inflation still being at a more than four-decade high.

"We are awaiting some kind of short-term rebound because the movement has been extremely quick from a historical point of view," said Francesco Sandrini, head of multiasset strategies at Amundi. "But we are awaiting, as well, the second part of the correction, which is when the macroeconomic fears will feed through into earnings. This is a hard time for us as portfolio managers because we are between these two situations."

A well-known recession indicator flashed in the bond market on Wednesday as the US yield curve inverted. That happens when shorter-dated yields such as for the two-year bond are higher than for longer-dated debt such as the 10-year.

The two-year Treasury yield rose to 2.961% Wednesday, while the 10-year climbed to 2.911%. Yields rise as bond prices fall.

In morning data releases, hiring demand remained strong and the services sector unexpectedly maintained growth momentum.

"Over the last couple of days, markets priced out some of the hawkishness that they were expecting for the Fed. What's going to be interesting is to see whether the Fed in the short term will try to push back," Gergely Majoros, a portfolio adviser at Carmignac, said before the minutes were released.

The 10-year benchmark US Treasury peaked at 3.482% just three weeks ago but has fallen since, as the growth outlook has weakened.

"I think we've seen the peak for the 10-year yield this cycle," said Tom Graff, head of investments at Facet Wealth. "The risk versus reward at the longer-end of the curve is still pretty attractive."

Oil prices moved lower after their biggest plunge since March on Tuesday. Global benchmark Brent crude was down 2% to $100.69 a barrel. The US equivalent, WTI, fell 1% to $98.53 a barrel after falling below $100 the prior day for the first time in about two months.

"When the growth outlook changes, people tend to anticipate that the demand side for energy will weaken as well and that tends to put pressure on the price of oil," Mr. Majoros said.

Energy stocks dropped 1.7% alongside crude oil prices, posting the largest losses among S&P 500 sectors. Diamondback Energy was among the worst performers, falling 3.4%, or $3.86, to $110.28.

Cryptocurrency exchange Coinbase Global declined 6.7%, or $3.70, to $51.71 after a rival exchange put forward a proposal to regulators that would allow crypto investors to bypass brokers while trading derivatives. Instability in the digital-assets ecosystem was also on display after broker Voyager Digital Ltd. said that it has filed for bankruptcy protection, days after it suspended withdrawals and trading on its platform.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

AAP logo

© 2022 Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

This service is published for general information purposes only without assuming a duty of care. AAP is not in the business of providing financial product advice (whether personal or general advice), and gives no warranty, guarantee or other representation about the accuracy of the information or images contained in this service. AAP is not liable for errors, omissions in, delays or interruptions to or cessation of the services through negligence or otherwise. The globe symbol and "AAP" are registered trademarks.

Email To Friend